Split verdict in British election may be positive for markets; here’s how!

NEW DELHI: With the first results of the British elections pointing to a shocking split verdict, British Prime Minister Theresa May might be wondering whether her decision to go for snap polls boomeranged.

May’s Conservative Party, which was expected to win a landslide victory, is now staring at a hung Parliament, with her party holding the maximum number of seats. But an emboldened opposition on Friday demanded that May should resign.

While the poll results created some initial jitters in financial markets, analysts said the outcome could actually be positive for markets as it may ensure a softer Brexit, which could be win-win for all.

In a recent interview to ET Now, Alastair Newton of Alavan Business Advisor had raised concerns over May’s “whole approach to economic and social policy”.

“There is a lot of stuff in her manifesto, which frankly is neither business nor investor-friendly. That, combined with very negative impact of her approach to Brexit, is going to have a sufficient reason to keep investors very cautious about the economic prospects of the UK. This is an election which is not going to be good for business and investment irrespective of who actually wins on Thursday,” Newton said.

A stronger support for May’s party could have lent the British PM enough support to go boldly into the gruelling EU negotiations and pay less for the Brexit settlement. But that’s what the market should fear the most.

Mohamed El-Erian, Chief Economic Adviser at Allianz, Newport Beach, California, told Reuters: “With the initial exit polls pointing to the Tories losing seats and Prime Minister May’s early election gamble not paying off, markets are pricing in a more complex outlook for policy implementation, including Brexit."

“Investors do not really know what to make of the UK elections,” said Geoff Lewis of Manulif Asset Management.

Lewis said a landslide victory for Theresa May would have given her a lot more authority going into the negotiations on Brexit, which is a worry for the markets.

“They might actually prefer a weaker government, which is going to have to make some concessions to Europe and may be avoid a hard Brexit,” he said.

Following the results so far, most Asian markets gained, but the pound fell sharply on Friday. The pound shed almost three US cents, or close to 2 per cent, while FTSE futures were down half-a-per cent as hopes rose that a Left-leaning Labour Party might actually be able to form a coalition government.

Jason Ware, Chief Investment Officer at Albion Financial, said if there are any changes to Brexit, or it’s probably a more globalised and softer Brexit, which could be positive, if anything.

“The biggest concern for markets last year when we went through Brexit was that this could be the beginning of the end of cooperation of the euro zone... and that the UK could go into recession. But if we get a softer Brexit or more of a globalist stance from the UK... it’s good for Europe, the UK and US assets,” he said.

Lewis said even after the elections, “we are still not going to know what kind of Brexit deal the UK is going to get for a couple of years. So it does not really make that much difference.